India overtakes Brazil to become the largest sugar manufacturer in the world

India overtakes Brazil to become the largest sugar manufacturer in the world

When the sugarcane crushing season finally started drawing a close last fortnight, India's sugar production figures stood at an all-time high.

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Chander Uday Singh

October 8, 2013

ISSUE DATE: August 15, 1982

UPDATED: August 25, 2014 18:18 IST

When the sugarcane crushing season finally started drawing a close last fortnight, India's sugar production figures stood at an all-time high. Vastly outstripping even the glut year of 1977-78, when sugar mills in the country churned out 64.5 lakh tonnes of the sweetener, sugar production by mid-July had crossed the 84 lakh tonnes mark and unofficial estimates placed the final figure at 85 lakh tonnes.

In the process, India had overtaken global sugar leader Brazil to become the largest manufacturer in the world, with almost 16 per cent of world production concentrated in its hands.

The figures surpassed all projections. At over 32 lakh hectares, the country's sugarcane acreage had beaten all previous records; giving the lie to conservative government estimates, cane production touched record heights of 200 million tonnes; by last April, unsold stocks with the sugar factories totalled 53 lakh tonnes, more than last year's entire production; even "cane arrears", the sums owed by sugar factories to the cane grower, had hit the record level of Rs 200 crore. Previous years have never seen arrears in payments exceed Rs 100 crore.

The over-abundance of sugarcane in the season just concluded grew to such a level that the sugar mills were forced to continue crushing operations far beyond what is normal. Instead of the usual six-month cane crushing period, factories around the country have been extending their operations since April, and last fortnight the perishable crop was still to be exhausted in many pockets.

Said Shishir Bajaj, executive director of the Bajaj group's Hindustan Sugar Mills in Uttar Pradesh: "Our gazetted cane requirement is 6.6 lakh tonnes, but we agreed to crush 7.5 because of pressure from the cane unions. Instead, we have ended up crushing 9 lakh tonnes, much of it at a loss because of low sugar recovery from offseason cane, and extended our crushing season by two and a half months."

Cyclical Record: Paradoxically, it is at this time of plenty, when the country has become a world-beater in the commodity, that the sugar economy is faced with its worst crisis. Intensely cyclical in nature, sugar production in the country goes through upswings and downswings unmatched in any other major sugar producing country: while cyclical dips nowhere exceed 20 per cent, India's sugar industry rides a perpetual and ever more erratic roller-coaster which swings production by up to 55 per cent in either direction.

Each high in production has been followed by a four-year cycle of crashing prices, lower sugarcane payments to the farmer, and finally a switch by cultivators from cane to other crops, resulting eventually in acute shortages at the bottom of the production cycle.

In 1977-78, when an enormous glut took the bottom out of the sugar market, the newly-elected Janata government reacted in typically unthinking fashion: choosing the populist option which would push down prices and win temporary support from urban consumers, they completely decontrolled sugar.

Prices crashed so completely that sugarcane sold for as little as Rs 30 to Rs 40 per tonne, and standing sugarcane in Uttar Pradesh was destroyed by cultivators who found it was not even worth their while to harvest. Predictably, a flight away from cane cultivation took place and two years later sugar production was at rock-bottom.

Domestic prices of free sale sugar shot up in metropolitan towns to as high as Rs 18 per kilogramme and the country, for the first time in 23 years, changed its status from sugar exporter to importer for two years running, a stunning development.

Since cane acreage sown has not decreased, even the most conservative estimates place next year's production at 75 lakh tonnes. Assuming enhanced consumption once sugar prices fall next year, 40 lakh tonnes will still remain as carry-over stocks at the end of the 1982-83 season.

Even with lower cane plantings at the end of this year, which will result in sharply reduced production of sugar in 1983-84 - since cane takes 10 to 18 months to ripen - the earlier surpluses will still result in an estimated 22 lakh tonnes carry-over at the end of 1983-84, which will contribute to continued high supplies in 1984-85.

The implications are staggering. A 15-month glut in 1977-78 drove so many cultivators out of cane that total availability of the crop dropped by 80 per cent. A three-year glut, which many sugar manufacturers are convinced is inevitable, could lead to absolute chaos in the sugar economy.

The Janata non-experiment apart, sugar planning in India has been riddled with short-term palliatives and bureaucratic vacillation. Refusing to adopt hard-nosed measures to stabilise the pendulum swings of the sugar cycle, successive governments have invariably chosen the short-term populist measure over the stabilising one.

A basic dichotomy of the sugar policy is the fact that sugar manufacture uses only 35 per cent of India's cane production. Surprisingly, the major sweetener used in the country is gur which, along with 'khandsari' or open pan sugar, and used cane, accounts for the balance 65 per cent. Since gur and khandsari are totally uncontrolled, in sharp contrast to sugar, which is regulated both for raw material and selling price, this unorganised sector is invariably the major villain in cane price fluctuations.

Says Dr Shantilal K. Somaiya, managing director of the Godavari Sugar Mills, one of the largest private sector sugar companies: "The Government's policy is related only to sugar, which uses one-third of the sugarcane. If you want to affect the whole but you control only the minor part, you are bound to get in-built distortions and anomalies."

Complicated System: A complex system of regulations governs the sugar economy. Sixty-five per cent of all sugar production is taken over by the Government as levy sugar at an average price of about Rs 2.85 per kg which sugar millers insist is a below cost figure.

The sugar factories are expected to make up this loss by free market sales of the remaining 35 per cent. Further, sugarcane prices are controlled by an almost arbitrary system under which the Central Government sets a statutory minimum price which the states then outstrip in their zeal to win over farmers.

In the current year, for example, although the minimum price was Rs 130 per tonne, the states ordered cooperatives and public sector mills which between them produce 62 per cent of India's sugar to pay between Rs 200 and Rs 210, which the private sector then followed.

With cane prices, cane purchase tax, excise and the cost of some other inputs controlled, sugar manufacturers complain that they have no control over 93 per cent of their costs, and thus lack the flexibility to compete for cane in lean years.

In scarce years, the gur-sugar dilemma is exaggerated out of all proportion by the levy purchase system. Since sugar mills are supposed to recover what they lose on two-thirds of their production by hiking up the price of the other third, for every extra rupee a sugar factory spends on cane it is forced to raise free sale sugar prices by three.

Gur manufacturers, faced with no such disability, offer much higher prices and take away huge amounts of cane which would otherwise go to the sugar sector, thus accentuating the sugar scarcity further.

Sugar production drops are thus exaggerated out of all proportion to the fluctuations in cane production. Between 1977-78 and 1979-80, cane availability fell by 29 per cent, but sugar production dropped 40 per cent; conversely, while cane production rose by 27 per cent between 1971-72, and 1974-75, sugar production shot up twice as fast at 54 per cent. In the period 1975-76 to 1977-78 too, cane production shot up by 25.7 per cent while a record sugar glut was created by a 52 per cent rise in sugar production.

Last fortnight, faced with the inevitability of a cycle that is bound to get worse unless action is taken, the Government was finally sitting up and taking notice. As a first measure, a cabinet sub-committee decision made it clear that the Government would start maintaining a 5 lakh tonne sugar buffer stock to curb the rapid drop in free market sugar prices.

Additionally, the Government was concentrating all its efforts on resuscitating the sabotaged sugar export drive - the international sugar agreement allowed India an export quota of 6.5 lakh tonnes, and it was clear that India meant to go the whole hog.

Said Sakhar Sangh Chairman Balasaheb Vikhe Patil: "Remedial measures now cannot be delayed. We need higher levy prices to make us more competitive, and a 15 lakh tonne buffer stock which can carry the country through one scarcity period. This is the only thing which can save the sugar economy and pull it out of this severe cycle."

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